TOKYO—Japan extended its yearlong streak of modest economic growth in the last three months of 2016, data showed on Monday.
Output in the country, which has the world’s third-largest economy but has struggled to shake off deflation, expanded in each quarter last year, the longest uninterrupted period of growth in three years.
However, the pace of expansion has been slowing, and questions about how Japan will weather a trade-skeptical Trump administration persist.
What happened?
Japan’s GDP increased by 1 percent in annualized terms in the three months through December, the government’s Cabinet Office said in a preliminary estimate. That was a hair slower than forecast; economists had expected an expansion of 1.1 percent.
Japan, whose growth is held back by a shrinking population, had not increased its output for four straight quarters since 2012-2013. The rise in the fourth quarter was weaker than in the rest of 2016, however.
What has been lifting output?
Exports, mostly. It has become a familiar pattern: Global demand for Japanese cars, chemicals and other products keeps factories humming, even as domestic spending sputters. In the last three months of the year, exports surged 11 percent in annualized terms, according to Cabinet Office data.
Domestic consumer spending, the biggest component of GDP, was essentially flat. Investment by businesses was up 3.8 percent, although much of that, too, is linked to exports as companies gear up factories to sell things abroad.
Could Trump threaten exports?
President Donald J. Trump has pulled the United States out of the Trans-Pacific Partnership (TPP), a trade deal Japan backed. He has repeatedly complained about the United States’s large trade deficit with Japan, which he says is exacerbated by unfair Japanese trade policies.
Retaliation, if it came, could choke off an important source of growth. That is a big reason Prime Minister Shinzo Abe has been cultivating friendly ties with Trump. Net shipments abroad added 0.2 percentage point to Japan’s in the three months through December, while consumption in Japan was flat as minimal increases in wages constrain consumer spending.
Data for 2016 as a whole show that overseas demand now accounts for about half of the expansion in GDP, leaving the economy particularly exposed to any new trade barriers from the US, which is Japan’s biggest export market after China. “A risk for Japan’s economy is that too much dependence on exports could trigger criticism from the US, which is paying so much attention
to trade between the two nations,” said Takashi Shiono, an economist at Credit Suisse Group AG. “Abe may have to show that the government is also trying to shore up the economy by implementing even more fiscal policy.”
The prime minister’s two-day visit to the US, which showcased chemistry between Abe and Trump, may have staved off a protectionist backlash for now. Having chided Japan on the campaign trail and in office for its trade and currency policies, Trump agreed to assign further economic dialogue between the two nations to his vice president.
“This is really an export-driven recovery we’re talking about,” Izumi Devalier, chief economist at Merrill Lynch Japan Securities, said on Bloomberg television. “Private consumption has been pretty weak still, and unless we get private consumption fired up, it’s hard to see growth accelerating very strongly from here.”
Japan had the second-largest trade surplus with the US after China last year, with the bulk coming from auto exports. Trump called this “unfair” when he withdrew the US from the 12-nation TPP.
New York Times News Service and Bloomberg News
Image credits: Bloomberg News